Money Pouring into Russia despite Sanctions

This article originally appeared at Russkaya Vesna.It was translated by J.Hawk at Fort Russ

The net inflow of money into funds investing in Russian shares continued its six-week streak, totaling $40.7 million for the week of 26 February – 4 March, in comparison with $80.1 million during the preceding week, according to the Emerging Portfolio Fund Research (EPFR).

Russia is continuing to outpace developing markets

Funds investing in shares in developing markets continued to grow during the three previous weeks, though at a diminishing pace with every week, according to Sberbank Investment Research.

The volume of inflows into these funds has not changed during the week of March 4, and reached $6.5 million according to EPFR Global. The MSCI EM index fell by 1.2% during the same week. Considering the low basis for comparison, the inflow of funds on an annualized basis increased once again to the level of .5% of assets, or $3.1 billion).

The leader among BRICS countries was India, whose inflows totaled .55% ($678.1 million) over the course of the week (the 12 month total was 7.4%, or $7.4 billion). China once again had comparatively weak results—an outflow of .12% ($341.1 million) in the course of the week, and 3.8% ($11.1 billion) over twelve months.

Investors are continuing to withdraw assets from Latin America--.75% ($216.3 million) during the week, according to Vesti Ekonomika.

Russia took the second place among the BRICS. Its total capital influx over the course of the year reached 1.1% ($525.2 million).

The first fiddle is still played by funds oriented toward Russia (inflow of .11%, $34.3 million). Passive funds attracted .47% ($54.2 million), active funds lost .02% of assets ($4.6 million). During the week ending on March 4, RTS index increased by .1%, and Brent crude price rose by 3.2%.

J.Hawk’s Comment: This is unadulterated good news, especially in the rather gloomy international economic environment. To put it in plain English, Russia is considered to have an attractive investment climate, no mean feat after a decade of sanctions, credit rating downgrades, threats of more sanctions, even threats of military action and provocative NATO exercises on its border. All of these measures were not so much intended to hurt Russia’s economy directly as to create the impression Russia is surrounded, isolated, starved of capital, with its economy “in tatters”, to quote Barack Obama.

Who gets the credit for all this? Two sets of people:

The first is Russia’s economic team, which includes the Finance Minister Siluanov and Russian Central Bank Chair Nabiullina, both of whom are dependable, competent, and financially conservative. They understand that Russia still has not fully established itself as a sound post-Soviet economy, therefore they avoid taking any measures to put that reputation into doubt.

The second is Russia’s political team, with President Putin at the helm. They have managed to pursue an active foreign policy aimed at deflecting Western expansionism aimed at Ukraine and Russia, while at the same time not scaring away Western investors. The numbers cited above indicate that, amazingly, capital continued to flow into Russia even as fighting was raging on the Donbass and Ukraine’s economy was cratering.

It is arguably on the financial front that Ukraine suffered its greatest defeat, since the renewal of fighting by Ukraine was predicated on the assumption that the West would hurry to shower Ukraine with billions, while Russia would experience capital flight which would ultimately force its leadership to abandon Novorossia and maybe even rethink the annexation of Crimea. None of these expectations came true, due to the credibility, trustworthiness, and steadfastness of its leaders, both political and economic. International investors know when they see a winner.